An Initial Exchange Offering, or IEO, is a method of fundraising in which a cryptocurrency company issues and sells tokens through a cryptocurrency exchange.
Unlike Initial Coin Offerings (ICOs), an IEO is instead administered by a crypto exchange on behalf of the startup that is looking to raise funds with its newly issued tokens.
As such, an investor must make an account on the exchange that is holding the token sale and send cryptocurrency into that account.
Therefore, the Know-Your-Customer (KYC) checks that occur when a user makes an account on an exchange also apply to the token sale.
Since a token sale is conducted on the exchange’s platform, token issuers also are responsible for paying a listing fee along with a percentage of the tokens sold during the IEO.
In return, the tokens of the crypto startups are sold on the exchange’s platforms, while their coins are listed after the IEO is over.
As the crypto exchange takes a percentage of the tokens sold by the startup, the exchange is incentivized to help with the token issuer’s marketing operations.
Overall, IEO participants do not send contributions to a smart contract, as is the case with an ICO.
Rather, they have to create an account on the exchange’s platform where the IEO is conducted.
The contributors then fund their exchange wallets with coins and use those funds to buy the fundraising company’s tokens.
Are IEOs the Future?
IEOs are generally considered to be a safer method of investing than ICOs because of the fact that cryptocurrency exchanges take care of due diligence for investors.
Projects are thoroughly vetted before they can be eligible for an IEO.
Because an exchange’s reputation hinges on the fact that the token sales that they facilitate are legitimate, investors in IEOs can enjoy a higher level of confidence in the tokens that are bought through IEOs than ICOs.
However, investors are highly recommended to do their own thorough research.